U.S. stocks face pressure as Treasury yields rise and earnings loom

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U.S. stocks face pressure

Highlights

Nvidia and Target earnings are key Wednesday drivers, with Nvidia implied volatility at 6% and shares 6% off recent highs but up 17.4% in three months.
U.S. 30-year Treasury yield hits 5.197%, its highest since 2007, pressuring risk assets as S&P 500 falls 0.6% and Nasdaq 100 drops 0.9% over the past week.
Global bond yields surge—UK 10-year at 5.126%, Germany at 2011 highs, Japan at 1990s levels—driving equity ETF declines across U.S., Europe, and emerging markets.

Key market drivers for the next session

As reported by CNBC, traders are focusing on a heavy Wednesday calendar as higher Treasury yields continue to weigh on risk assets and shape expectations for the next trading session.

Nvidia reports after the bell, with the stock down 6% from the high reached last week but still up 17.4% over the past three months. Implied volatility ahead of the earnings release is about 6%, signaling that the options market is bracing for a sizeable move in either direction.

Target is due to report before the bell, with shares down 4.4% from their April high but up 10% over the past three months. Lowe’s also reports before the bell after Home Depot beats estimates on Tuesday, while Lowe’s shares are down 25% from their February high and off 21.5% over the last three months.

McDonald’s holds its annual shareholder meeting on Wednesday, with the stock down 18% from its March 2 high and nearly 10% over the past month. Amazon also remains in focus ahead of Jeff Bezos appearing live on CNBC's 'Squawk Box', with shares down 7% from their May 5 high but up nearly 27% over the past three months.

Bond market moves and global spillover risks

Bond markets remain central to the equity outlook. The U.S. 30-year Treasury yield reaches 5.197% during the session, its highest level since July 2007, and stands at 5.183% on Tuesday night, while the U.S. 2-year yield is at 4.12% and the 3-month Treasury bill yield is 3.663%.

CNBC contributor Guy Adami says the equity market is reacting to deterioration in bonds, while also warning that Japan is a potential flashpoint. In the past week, the S&P 500 loses 0.6% and the Nasdaq 100 falls about 0.9%.

Investors are also watching inflation data from Germany, the UK and the European Union. Japan's 10-year yield is at levels not seen since the 1990s, Germany's 10-year bund yield is at highs last seen in 2011, and the UK 10-year gilt yield is at 5.126%, near levels associated with 2008.

European and emerging market equity funds are also under pressure. The Vanguard FTSE Europe ETF loses 3% in the past month, the SPDR Euro Stoxx 50 ETF falls 3.5%, the iShares MSCI United Kingdom ETF drops 4%, and the iShares MSCI Germany ETF declines 2.7%; among emerging markets, the iShares MSCI Emerging Markets ETF is down 2.4% in the past week, while Brazil and Mexico-focused funds also post recent losses.

Our earlier article on renewed U.S. rate-hike expectations explained how persistent inflation has pushed fed funds futures to price in a meaningful chance of another Federal Reserve increase later this year. We also noted that the path for stocks—especially the Nasdaq-led growth trade—hinges on whether inflation expectations remain contained, limiting the need for a more hawkish policy shift.

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